Question

Capital budgeting projects can be classified according to the purpose of the project. List and explain the three categories for classifying projects according to their purpose.

Answer 1

Capital budgeting decision can be classified according to the purpose of those projects-

A. Expansion projects are the capital budgeting projects which will be undertaken for expansion purpose and these products are mainly undertaken in order to expand the existing business of the company

B. Replacement projects are all such projects which are to be undertaken by the company in order to increase the efficiency of the current system by replacing the current resources and making it better by increasing the efficiency through replacement

C. new project or new services and other form of capital budgeting project which will be undertaken after company will want to enter another project or anotheranother segment and they will be introducing new project so these capital budgeting project are undertaken in order to enter into new project by the company.